‘We are not trying to kill the Fund’

I am writing in response to the article “Senate passes bill that will ‘kill’ Retirement Fund, raise taxes,” published in the Dec. 29, 2011, issue of the Marianas Variety. As I was interviewed by both newspapers at the same time, I was quite appalled by how misleading the Variety article’s title was.

In order to address the many issues surrounding the NMI Retirement Fund, the Senate created a special committee to work collaboratively with the Fund, its board, and the Commonwealth Retirement Association to create legislation that would better our Retirement Fund. As a result of this committee, the Senate passed with the support of the NMI Retirement Fund:

– SB 17-99, transferring administrative functions of the Government Life and Health Insurance program to the Department of Finance;

– SB 17-92 SDI, repealing the Beneficiary Derivative Lawsuit Act and suspending NMI Retirement Fund Procurement Restrictions;

– SLI-17-13 SSI, transferring disposition and management decisions of public land golf course leases to the NMI Retirement Fund;

– SLI 17-14 SD1, providing for the transfer of funds from Marianas Public Land Trust to the NMI Retirement Fund;

– SLI 17-15, allocating 25 percent of the annual revenue to the government’s employer contribution to the retirement fund; and

– HB 17-226, HD1, SS1.

So, if the aforementioned legislation and all the Senate’s effort are in support of the Retirement Fund, how are we trying to kill it? Furthermore, how do the Senate’s amendments to HB 17-226 hurt the Retirement Fund and the CNMI in this situation?

HB 17-226, as amended by the Senate, was supported in session by: Mr. Sixto Igisomar, the NMI Retirement Fund board chairman; Mr. Richard Villagomez, the NMI Retirement Fund administrator; and Mr. Oscar Camacho, the Commonwealth Retirement Association treasurer. The substitute bill is a much needed reform measure to help both retirees and active employees.

If current employees continue to retire from the system, the benefit payouts the Fund would have to make is projected to grow from approximately $63 million to around $90 million over the next 10-15 years. The CNMI’s resources have deteriorated to the point where the government is unable to satisfy the existing obligations to members of the Retirement Fund and it is unlikely that the economy will turn around fast enough for our resources to reach the level necessary for the government to meet both the existing and future obligations as more people retire.

Currently employees fear that the Retirement Fund is beyond saving and want to protect their portion of contributions and this fear is understandable. The estimated amount, if all active members exercise the options to roll over their contributions, is $113 million, $100 million of which has already been set aside by the Honorable Judge Govendo to protect active employees’ contributions.

By allowing current employees the option to roll over to the defined contribution plan two things are accomplished:

Current employees who determine it is in their best interest to roll over can protect their contributions by exercising the option to roll over their contributions into the defined compensation plan.

To the extent that current employees exercise the option to roll over their contributions, future obligations of the government will be reduced. For example, if all active employees choose to roll over, benefit payouts will not increase from $63 million to around $90 million; and eventually start to decline. Under this example, approximately $130 million in accrued actuarial liabilities will be erased from the government’s obligation.

There was one problem with the original HB 17-226; it lacked an appropriate funding mechanism. The current funding mechanism is based on a percentage of the wages of the working defined benefit plan members. If all defined benefit members withdraw their contributions, there will be no wages upon which to determine the government’s contributions. The Senate, recognizing this deficiency, established a new funding mechanism based on a percentage of the total wages paid by each branch and agency of the government. In fact, the Senate substitute bill goes one step further by providing an additional source to fund the rollover of the employee contributions. The substitute bill reduces the rebate offset amount from 90 percent to 70 percent and the additional taxes generated will be used to help pay for the rollover of contributions and the government’s unfunded liability.

Unfortunately, our Retirement Fund is in ruin and immediate measures must be taken to save it. The Senate is committed to seeing the Retirement Fund through its many issues and the passage of these bills is only the first step. Despite what the Variety article implies, we are not trying to kill the Fund. We are trying to save it.